Investment vehicle for the new rich

A friend of mine from China's coal-rich Shanxi province told me that many coal mine developers buy brands such as Mercedes-Benz, BMW, and even Lamborghini, Ferrari, Maybach, Spyker, Rolls-Royce and Bentley, just because their neighbors or friends own these kinds of cars.

Of course, this is only a matter of "saving face" in the Chinese tradition. But, it's really a boost for luxury vehicle sales in China.

Luxury vehicle sales continue on the fast lane this year, although growth of China's entire vehicle market has slowed down sharply from a blistering pace in 2010.

Mercedes-Benz posted a robust sales increase of 86 percent in China in the first quarter of this year, while BMW and Audi's China sales surged by 71.2 percent and 24.6 percent. And ultra-luxury brand Bentley grew its sales in China by 66.8 percent.

However, the entire vehicle market in China only edged up 8.1 percent.

There are several major engines to propel China's luxury vehicle market over the next five to six years, which will be a bonanza for European luxury car brands.

The number of people in China - especially millionaires and even billionaires - is expected to increase rapidly in that period, powered by the country's steady economic growth.

There were some 960,000 people on the Chinese mainland with a personal wealth of at least 10 million yuan (1 million euros) by the end of 2010, according to the Hurun Wealth Report 2011. The figure was up 9 percent from the previous year.

The mainland also had 60,000 billionaires, an increase of 9.7 percent from 2009.

The Hurun Wealth Report 2011 indicates that millionaires on the mainland owned 3.3 cars on average at the end of last year.

Age could also be a factor that could boost luxury car sales. According to Mercedes-Benz China, the average age of Chinese owners of the brand's top-notch S-Class is 39, compared with 55 in Europe.

Also, luxury brands, such as BMW, Mercedes-Benz, Audi and Volvo, are ramping up local production to offer more less-expensive models and to expand sales networks, which will further drive the luxury vehicle market.

Mercedes-Benz plans to increase its annual production capacity in China to 300,000 units by 2015 from less than 100,000 units it currently produces. In the same time period, total investment in China by the automaker and its local partner will hit 3 billion euros.

BMW is expected to complete a second plant in China this year and has a long-term goal of producing 300,000 units a year.

In Beijing, the price of the locally made BMW 3 Series and Audi A4 sedan have decreased to less than 300,000 yuan, which is affordable for more people.

Audi, the top luxury car provider in China, plans to increase the number of its dealerships in the country to 500 in the years to come from roughly 180 now. Many sites will be located in second- and third-tier cities.

The company vows to sell 1 million cars in China from 2011 to 2013.

The author is a veteran auto journalist at China Daily.